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Energy Costs Push Inflationary Pressures Higher in Mid-America Region as Growth Soars

April survey results at a glance:

• Business Conditions Index advances to its highest level since May 2006
• Inflationary pressures rise to highest level since July 2006
• April hiring was brisk for firms with close ties to agriculture and energy production
• Confidence remains weak

 Energy Costs Push Inflationary Pressures Higher in Mid-America Region as Growth Soars

Inflationary pressures soared as economic growth advanced in the Mid-America region, according to the April Business Conditions survey of supply managers and business leaders in the nine-state region.

The overall Business Conditions Index rose for the fourth straight month to its highest level since May of last year. The index, a leading economic indicator, advanced to 62.0 from March’s 58.9 and February’s 58.4.

“This part of the nation has not experienced the same degree of economic fallout from the downturn in the housing sector felt throughout the rest of the U.S. Furthermore, strong farm income and booming ethanol production continue to push growth in the region above the national average,” Creighton University Economics Professor Ernie Goss said today.

However, inflationary pressures at the wholesale level are once again trending upward. The prices-paid index, which tracks the cost of raw materials and supplies, rose to 81.7, its highest level since July of last year, up dramatically from March’s 71.5.

“April’s increase in prices was the largest we have recorded since post-Katrina. Even with the first quarter U.S. GDP (gross domestic product) only slightly above one percent and continuing weakness in the housing sector, I expect rising inflationary pressures as recorded in our regional survey and in national surveys to prevent the Federal Reserve Open Market Committee (FOMC) from reducing interest rates at its meeting on May 9. I expect no change in interest rates at that meeting, and I do not expect the FOMC to relax its inflationary bias,” said Goss.

New hiring for the region expanded to 58.9 from March’s 56.5 and February’s 58.6. “Hiring, especially in nonurban areas of the region, remains vigorous with a rate of growth almost 50 percent above that of the nation. Firms that we survey that have links to agriculture or energy production are experiencing the strongest growth. However, a significant number of survey respondents in nonurban areas reported difficulty in finding and hiring skilled workers. This has restrained growth in some areas,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

Looking ahead six months, supply managers’ economic optimism, captured by the confidence index, rose to a weak 53.9, up from March’s 51.0 but down from 56.1 in February. Higher energy and oil prices helped restrain the confidence index for a second straight month.

“Oil prices approaching $70 per barrel, international tensions, and a weak housing sector in metropolitan areas continue to restrict confidence,” said Goss.

Trade numbers were up significantly for April. New export orders shot up to 60.7 from 52.0 in March and imports bounced to 60.3 from 56.5 in March. “The upturn in new export orders was very good news for April. On the other hand, elevated oil prices generated the strong import index,” said Goss.

Other components of April’s Business Conditions Index were new orders at 66.3, up from March’s 61.3; production at 68.2, up from 64.2; inventories at 54.4, down from 54.8; and delivery lead time at 52.2, up from 51.4.

The Creighton Economic Forecasting Group has conducted the monthly survey of supply managers in nine states since 1994 to produce leading economic indicators of the Mid-America economy. States included in the survey are Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.

The Institute for Supply Management, formerly the Purchasing Management Association, began to formally survey its membership in 1931 to gauge business conditions. The Creighton Economic Forecasting Group uses the same methodology as the national survey.

The overall index, referred to as the Business Conditions Index, ranges between 0 and 100. An index greater than 50 indicates an expansionary economy over the course of the next three to six months.

http://www.creighton.edu/business/economicoutlook/